Brazil is Cozying Up to Iran, but is this Actually Bad News for the U.S.?

I am assuming that every reader out there is pretty much stuffed from the infamous turkey-fest that occurred a few days ago. I certainly was, as I so blatantly found out after I found myself sitting on the couch for a good three-hours- stomach gorging out- after about four massive helpings.

I am also going to assume that family time took away from the usual habit of web-searching. Holidays tend to bond relatives together, pushing aside the normal day-to-day business of news monitoring and blog posting (as it should). So, with this being the case, you will have to forgive me for a few days of laziness on my part. Coincidentally, I am also enjoying a nice break from college coursework, so the last thing I wanted to do was sacrifice eating, sleeping, and relaxation with political analysis J J.

But now that the break it over, it is time to once again get back on the grind until Christmas.

So…what has happened over the last few days? Well, President Obama has finally decided to speak directly to the American people about his way forward in Afghanistan (slated for December 1). The stalemate over Iran’s nuclear program appears to be going nowhere, as we probably all predicted. Iraq’s national election is going to be delayed, possibly stalling the President’s withdrawal plans. And the Israeli-Palestinian peace plan is all but buried, thanks to Israeli settlement-expansion and Palestinian conditions. Sounds like a typical few days in the world of politics, doesn’t it?

Not exactly. There is one noteworthy event that occurred during the Thanksgiving holiday, and it actually happened right in our own backyard.

Websites and papers across the United States are reporting that Brazilian President Lula da Silva- typically referred to as a U.S. ally- decided to play host to Iranian President Mahmoud Ahmadinejad in the latest Brazilian state visit. Taking cues from his political advisors- or perhaps from his own merit- Lula welcomed Ahmadinejad with a combination of praise, eagerness for constructive dialogue, and curiosity about future Brazilian-Iranian relations; all worries for Washington in numerous ways.

I am not sure what exactly conspired between Lula and Ahmadinejad during their state meeting. Undoubtedly, Iran’s nuclear program had to be discussed between the two leaders. Considering that a new U.N. sanctions push towards the Islamic Republic is all but evident, the hype surrounding Iran’s nuclear capability is hard to avoid. Economic relations were also probably talked about in an extensive way. Brazil seems intent on increasing cooperation within the developing world, thereby building a unified voice and a counter weighing force in the global community. South American affairs may have also been on the agenda, particularly the political tensions between Venezuela and Columbia over U.S. air bases (Lula may have asked Ahmadinejad to press Chavez on the issue, although this is anyone’s guess).

All of this seems pretty benign to me. So, why is the United States displeased over Brazil’s meeting with Tehran? Perhaps Brazil’s support for Iran’s nuclear program could be a large piece of the puzzle. In fact, this is more likely the entire piece of the puzzle. In the past, Lula da Silva responded to U.S. sanctions with a rather surprising opposition. Under the Nuclear Non-Proliferation Treaty, Lula argued, Iran is allowed to construct nuclear plants and enrich uranium for peaceful energy purposes. The Brazilian Government’s tone towards a new U.N. sanctions regime has continued down a similar vein, overwhelming lobbying against harsh penalties against the lifeblood of the Iranian economy (petroleum reserves). In fact, there is ample evidence that indicates more countries from the developing world are starting to endorse the Brazilian position.

Understandably, this is potentially devastating for America’s anti-proliferation policy. The west is devoted to keeping nuclear enrichment out of Iranian hands, and any outspoken power that disagrees publicly with this stance runs the risk of delegitimizing their efforts. But we have to put Lula’s Iranian policy in perspective.

For one thing, Brazil- while a country with the largest economy in Latin America- is not a state with veto-wielding power at the U.N. Security Council. Therefore, any Brazilian opposition to U.N.-based sanctions has nothing but a symbolic effect. The U.N. Security Council will still have the capability of passing a new set of targeted measures against the Iranian economy (although sanctions will probably continue to fail).

Secondly, although Lula da Silva is one of the most politically popular figures in the international community, the “Six- Powers” are still hesitant to label him as a major power-broker on par with American and European officials. Similarly, although Brazil possesses enormous diplomatic potential, it still lacks the administrative ability to make their opinions heard throughout the entire world (this may be changing, according to the latest special report from the Economist).

Do not get me wrong; Brazil has made tremendous improvements over the past decade in a large amount of economic, political, and social issues. Much of this is rightly accredited to Lula da Silva and his knack for domestic reform. But in reality, Brazilian backing for an Iranian nuclear capability is anything but an attention-grabbing headline. If Brazil’s global stature was currently on par with China and Russia, Lula’s meeting with Ahmadinejad would certainly take a bigger place under the American radar. Thankfully, this is anything but true in the current day.

Side Note: The Iranian Government would see Brazil as a hypocrite if Lula failed to appease Tehran’s nuclear work. Brazil was once interested in a nuclear weapons deterrent (until it abandoned its nuclear work in the 1970’s) and currently, the South American nation is still constructing civilian nuclear power plants throughout the entire country. Brazil plans to construct and operate another eight plants by 2030. With all of this in mind, the political fallout would be enormous if Brazil simply followed the path of the United States on the nuclear issue. Iran would not only stamp Brazil as a two-faced American lackey, but would most likely act on its disgust by cutting off diplomatic relations. Remember; Brazil is trying to become the spokesperson for the developing world. What benefit would Brazil receive by alienating a growing Muslim power- and substantial oil producer- in the Middle East?

**Included under the comments section below is an assessment by Paul Bremer, the President of the Eurasia Group. In his view, Lula da Silva may be going down the same economic path as Hugo Chavez, the most popular anti-American leader in Latin America. This is just another example of how scholars are puzzled over Brazil’s recent behavior.

Brazil’s emergence as an investor-friendly, free market democracy has been one of the world’s most encouraging stories of the past several years. As Venezuela’s Hugo Chavez perfects his Castro impersonation, Ecuador and Bolivia follow Chavez’s example, and Argentina’s economy flounders, Brazil’s President Luiz Inacio Lula da Silva has maintained responsible macroeconomic policies — while redistributing wealth to narrow the still-considerable gap between the country’s rich and poor. But as he begins his final year in office, a huge off-shore oil find has emboldened his government to deepen state control of the energy sector, clouding the investment picture.

Lula now looks likely to win a legislative battle over the future of Brazil’s oil sector. State-owned oil company Petrobras will then hold exclusive rights to operate all new exploration and production in off-shore fields that are believed to contain one of the world’s largest deposits of crude oil discovered in recent years. Brazil’s government will then control all activity in the new fields, making the big decisions on project operation and management. Over time, Petrobras will become a much larger but less profitable and less efficiently run enterprise.

No surprise then that multinational oil companies resolutely oppose this plan. Despite the tremendous potential in the offshore fields, many of them may simply opt not to work with Petrobras under the terms the Brazilian government has proposed. That’s why there’s a real risk that Brazil will have to turn to Chinese and other state-owned energy companies for the resources they’ll need to bring this oil to market. That will be bad news for those who import oil because, though Petrobras has the technical expertise for the job, the company is already approaching overstretch on development of existing projects. The fact that Petrobras can do the job doesn’t mean it should. Partnership with oil multinationals with much more experience managing projects to recover maximum quantities of deep sea oil deposits would bring more oil to consumers — and do it more quickly and efficiently.

Brazil’s opposition isn’t happy with Lula’s plan either, but his popularity (near 80 percent) has kept the opposition quiet. Even Sao Paolo Governor Jose Serra, the candidate most likely to defeat Lula’s preferred successor (Chief of Staff Dilma Rousseff) next October is keeping most of his reservations to himself. Lawmakers who would normally oppose a government-managed plan are eager to remain in Lula’s good graces as elections approach.

Without determined opposition, the legislation will probably pass. If Serra wins next fall’s presidential election, he will probably try to reverse the legislation. But that would be a long process. If Dilma wins, international oil companies can only hope for an eventual victory in court on the reform plan’s constitutionality. Either way, Brazil’s energy sector will be much less investor friendly for the next several years.